Jan. 24 (Bloomberg) -- Serbia’s government must adopt a medium-term framework for regulated prices and allow only moderate public wage and pension increases to slow inflation and ensure macroeconomic stability, the central bank said.
The inflation rate reached 12.2 percent in December, more than double the upper end of the central bank’s target band of 2.5 percent and 5.5 percent, the Belgrade-based Narodna Banka Srbije said in a letter to Prime Minister Ivica Dacic, published on its website today.
Considering “the nature of current inflationary pressures” is determined by food-cost instability, the government should take immediate measures to stabilize the market and lower the volatility of food prices, according to the letter, signed by Governor Jorgovanka Tabakovic.
It’s “exceptionally important” that the government determines a medium-term framework for regulated price adjustments, as well as maintaining planned public wage and pension policies to make the monetary policy “more efficient,” she said in the letter.
The central bank expects inflation to start slowing from the second quarter of this year and return to the target of 4 percent plus or minus 1.5 percentage points by the end of 2013.
The National Bank of Serbia, which has raised borrowing costs seven times since last June by a total of 200 basis points to 11.5 percent, said the “full effects of monetary- policy measures on inflation have yet to manifest” and we will “assess in the coming period whether any additional monetary policy tightening is required to ensure the return of inflation to the target in the medium-term.”
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